FTSE recovers from BoE induced plunge

FTSE and other European indexes are clawing their way back into black this morning after a surprise plunge in the previous session caused by downbeat economic forecasts for the Eurozone and the UK economy.

The European Commission provided a generous helping of reasons to worry about the region’s economy including a slowdown in demand from emerging economies, domestic political frictions and the effects of the trade war. Its forecast of a regional growth of 1.5% for this year may still prove too optimistic given that none of the trends it talked about show any signs of abating. 

After the debacle with the Italian budget and loose spending plans last year the EC now pegs Italian growth for this year at only 0.2%. More importantly, the region’s biggest driver Germany is also slowing down, with the latest set of export figures showing an annual decline of 4.5%. The DAX this morning is back in positive territory, up 0.13% after a 2% plunge Thursday, mainly on a surprise positive export number for December and some company news.

At home, the FTSE is also regaining some ground following the worst decline this year of 1.1%. The Bank of England sounded a similarly worried note about the UK economy with Mark Carney warning that a no-deal Brexit could cause a recession. 

But a surprise move by Jeremy Corbyn is about to start shifting the political ground. The Labour leader has written a conciliatory letter to the Prime Minister which could encourage some of his party members to vote in support of Theresa May’s proposals and give the PM ammunition against her own rebel MPs. It could mean that instead of a hard Brexit the country could walk away with some sort of deal that is not necessarily good for Britain but avoids immediate calamity. Sterling traders were unimpressed with that option, trading the currency down to 1.2927 against the dollar.

Trade war shows no signs of abating

The prospect of the swift resolution to the Sino-US trade spat faded into the distance in the last 24 hours after President Trump ruled out a meeting with his counterpart before the 1 March deadline and a White House representative said that there is a long way to go before a trade deal with China is struck. The tariffs already in place due to the dispute are already eroding growth in all the major regions and a further intensifying would have major repercussions not only for US stocks but also Asian and European stock markets.